MUMBAI: The steep fall in gold prices recently may have come as a blessing for housewives who have been queuing up before their neighbourhood jewellery stores, especially in South India, but many retail punters and investors who initiated bullish bets on the commodity exchanges have been left licking their wounds.

Clients who lost money included many high net-worth and small investors and punters who believed the metal would not breach a key support, which had held for the past 10 months, and had initiated bullish bets on commodity futures bourse MCX. Many of these investors lost their margins — money required to take positions on futures - while others were forced to cough up funds to hold on to their positions. Little did they and brokers advising them realise that talks of the Cypriot central bank selling its reserves to get crucial foreign aid to recapitalise the country's banks would cause the support to fall like nine pins.

Shripal Shah, executive director, Kotak Commodities, said the extent of the fall took everybody by surprise and compelled brokerages such as his to issue a slew of margin calls on clients. He added, though, that brokers faced no funding problems despite the sharp fall as clients either exited positions at a loss or topped up margins to keep their positions open.

"The support of around 29000 had held largely since May 2012," said Shah. "This, coupled with the fact that the average Indian investor tends to buy on dips instead of selling on rallies resulted in their holding on to longs despite the trend having become bearish over the past few months."

Late last year, investment bank Goldman Sachs said gold would top out in early 2013 and recommended recently that investors close out long positions in the metal as the US economy improves and interest rates increase. This came after news that billionaire investor George Soros halved his holdings in the world's largest gold ETF, SPDR, during the quarter ended December 2012.

Despite a build up of negative sentiment over the past couple of months, many Indian investors chose to initiate fresh bullish bets around Rs 29,000. However, a collapse in international gold prices last Friday breached that level and exposed these investors to huge losses.

Krishna Nathani, managing partner, Rhim Comtrade, said his company had advised bulls to trade with stop losses below Rs 29,000 to avoid losses if prices fell. "Clients who took our advice exited their positions at a loss, but we had to collect margins from clients who chose to keep their positions open," Nathani said.

The winners of the fall included arbitrageurs and those who had placed bearish bets. Since futures is a zero sum game, with the proportion of winners and losers being equal, arbitrageurs who buy and sell the same commodity across different months and those who take contrary bets between two exchanges, like MCX and Comex, part of the CME group, said brokers. They declined to be quoted as such inter-exchange arbitrage is not allowed by the regulator, Forward Markets Commission.

Gnanasekar Thiagarajan, director Commtrendz, a commodity research company, said those long on the metal were singed as they did not expect the $1,520 an ounce (31.10 gms) level to be breached. MCX gold prices take cues from gold traded on Comex, where many traders who believed in the support holding were themselves hit by Friday's and the subsequent days' sharp fall. The fall in gold has coincided with a decline in outstanding positions, a guage of money flowing into a market.

Between last Friday and Tuesday, aggregate open interest of the gold contracts - kilo contract, 100 gm mini contract, 8 gm guinea contract and 1 gm petal contract - has declined by 17% accompanied by the price fall. This shows a decline in bullish bets.